ATW Daily News

China's Big Three make third-quarter U-turn

Wednesday October 28, 2009

Air China, China Eastern Airlines and China Southern Airlines enjoyed a financial turnaround in the third quarter owing to a strong recovery in the domestic market and gains on their fuel hedges.

CA earned net income of CNY885.3 million ($129.5 million) in the quarter, a significant reversal from the CNY1.94 billion loss suffered in the year-ago period, on a 1.3% lift in operating revenue to CNY14.05 billion. Expenses dropped 10.6% to CNY13.45 billion and the Beijing-based airline reported a CNY554 million profit on its fuel hedges for the period.

China Eastern posted a net profit of CNY23.2 million, reversed from a loss of CNY2.33 billion. A fuel hedge gain of CNY154 million was a key driver of the result.

China Southern was CNY284 million in the black compared to an CNY810 million deficit in the 2008 quarter. Revenue rose 9.5% year-over-year to CNY15.95 billion and expenses dropped 5% to CNY13.37 billion. CZ cited "effective cost control" and the "return of the civil aviation construction fund" as reasons for the improvement.

The Big Three were profitable through the first nine months of 2009 as well thanks to government aid that helped carry them through the recession. CA posted a CNY3.81 billion profit through September; it received a government subsidy of CNY962 million. CZ reported net income of CNY322 million during the period thanks to CNY1.56 billion in government aid, and CEA was CNY1.2 billion in the black as of Sept. 30.

Despite the results, local analysts continue to say that China's airlines still suffer from overcapacity and inefficiencies. "Domestic demand keeps rising, but airfares are still plummeting and Chinese carriers' international routes have been hit hard by swine flu," an industry insider told ATWOnline, adding that the trio's fourth-quarter profits will fall from third-quarter levels.

by Katie Cantle

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